Zelle comes calling, but are small banks interested?

Dozens of community banks are preparing to add Zelle in the coming months — some more reluctantly than others.

Seven large financial institutions partnered in late 2015 to form the real-time payments network that is now Zelle. Today, the consortium is slowly making progress toward a vision of creating a platform open to all banks and credit unions regardless of size. Early Warning, which operates Zelle, said about 80 banks and credit unions participate and roughly 100,000 consumers sign up daily.

Early Warning launched a standalone Zelle mobile app in September that lets customers of any financial institutions join the network, even if their banks are not members. Customers have complained that Zelle is not easy to join or use if their financial institution does not participate, so getting small banks to join is critical to the network's success.

Zelle has received mixed reactions from community bankers so far. Some embrace the concept, while others see it as a non-revenue-generating obligation designed for big banks. It’s too early to tell what impact the platform could have on smaller institutions, but some industry observers say Zelle could be useful for those banks.

The network “helps customers be more engaged with banks and limits the number of branches you have to build," said Chris Nichols, chief strategy officer of the $7.1 billion-asset CenterState Bank in Winter Haven, Fla.

While Zelle doesn’t produce revenue for participants today, Nichols said it could help banks save money by allowing more customers to move money digitally, rather than visiting branches. It could reduce the operational costs tied to processing checks and cash.

Belmont Savings Bank in Massachusetts is also eager to join, said Robert Mahoney, the $2.7 billion-asset bank's president and CEO. Mahoney said he glad to see the banking system take control of a product to move funds between bank accounts on the same day, rather than relying on outside tools such as Venmo and Popmoney.

James Manseau, chief retail banking officer of BNB Bank in Bridgehampton, N.Y., said offering the latest technology helps his $4.5 billion-asset community bank compete with larger institutions. BNB Bank expects to have Zelle in place early in the second quarter, before there is too much customer demand, Manseau said. He added that he wants to avoid losing customers asking for Zelle as big banks start to advertise the network.

“The fact we can offer the same products and services as the larger banks’ technology is really key for us to be able to keep up with the [large banks] of the world,” Manseau said.

Still, the network has its skeptics. Some community bankers, even those who plan to join, are concerned that the big banks have made Zelle free for users.

“The interesting thing about Zelle is it’s a copycat of Venmo ... and Venmo hasn’t generated any real revenue for PayPal,” said Bill Parent, president and CEO of the $2.7 billion-asset Blue Hills Bank in Norwood, Mass. “What worries me is it’s a consumer enhancement that's good for the experience but increases our costs and doesn’t drive any revenue.”

While Century Bancorp in Medford, Mass., plans to join, Barry Sloane, the $4.8 billion-asset company's president and CEO, said he hopes the big banks have thought through potential security concerns that coincide with sharing data.

“It is something young people are interested in and talk about — I find it surprising they don’t just hand each other a $10 bill, but so be it,” Sloane said. “I think for us there is now a standard in the industry thanks to the giants, so clearly we will adopt it.”

Zelle moved $75 billion across its network last year, a 36% increase from 2016. The number of processed transactions rose by 45%, to about 247 million.

Dozens of community banks are in the pipeline to join the Zelle network. Matt Wilcox, marketing strategy and innovation executive for Fiserv’s digital banking group, said Fiserv is working with 30 institutions to bring them on the Zelle network, including about 10 community banks. Fiserv is one of a handful of technology vendors partnering with Early Warning to help financial institutions adopt Zelle.

“I can’t recall a time that there has been such focus and demand for something like Zelle — from the top banks all the way down to small banks,” Wilcox said. “We're seeing quite a bit of interest and activity in the community bank space. There's a strong desire for them to get involved.”

Zelle’s no-fee model has caused some banks to step back and weigh the necessity of the tool, Wilcox said, though most banks have decided it is worth embracing the network for customer engagement purposes.

“Most banks recognize that if clients engage with them on [Zelle], this is able to drive revenue in other areas,” Wilcox said.

Zelle's outreach to smaller institutions will continue next week when Ian Macallister, the network’s head of sales and customer success, speaks at the Independent Community Bankers of America's annual convention. The goal is to convey that Zelle is open to financial institutions of all sizes, while also seeking feedback and recommendations from community bankers.

Zelle provides other opportunities that can lead to revenue-generating solutions, Macallister said, noting that businesses are starting to use the network to send money to consumers.

“We're always looking for opportunities to make it easier, safer and faster for their consumers and for them to join Zelle,” Macallister said. “That’s why we continue to build out our own network use cases and those [technology] partnerships.”

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